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The Failings of the Globalization Project

By Vrshank Ravi '19, Staff Writer

· Vrshank Ravi

Economic globalization, contrary to popular thought, is not an inevitable, market-led equilibrium in which capital flows are diffused throughout the world, matching demand with supply. Instead is a contrived, militarized effort to control resources and bankroll global corporations under the moniker of “development.” But it was not always that way, as the post-WW2 Marshall plan to revitalize Western Europe showed. What made a country like Mexico have their minimum wage fall by 50 percent from 1983 to 1989, and how can that be attributed to this phenomenon? The ideological constraints imposed by the governing model of globalization ushered in austerity policies that can be associated with the inequality and social unrest in these nations.

Globalization’s changing face during the 1970s and 1980s was a result of changing objectives of the post-WW2 aims of the USA and the First World in helping other countries catch up with development. The recipient countries faced social upheaval and resistance to change their economies at the behest of the donor nations. Invasions in Chile, Central America and Iraq by the US prompted national liberation forces in 14 states between 1974 and 1980. Why was there such unhappiness with the noble global aspirations of the First World and associated supranational institutions such as the World Bank and International Monetary Fund (IMF)? An important key to understanding this lay in the World Bank’s own analysis in 1974, where it concluded that more than a decade of rapid growth in underdeveloped countries has been of little or no benefit to perhaps a third of their population. Paradoxically, while growth policies have succeeded beyond the expectations of the first development decade, it questioned the very idea of aggregate growth as a social objective.

To add to the problem of uneven growth, the “debt regime” began in the 1980s, where external powers dictated monetary and fiscal policy to national governments, flexing muscle though conditions set by the IMF and World Bank. This largely happened as the US Fed wanted to reduce global dollar supply by increasing the federal fund rates and cutting the supply to credit, which further spiked rates. This was a huge problem as in the 1970s - access to credit was cheap and a lot of countries borrowed in the US Dollar to fund projects - but with interest rates later going through the roof, they had no way out to repay. Issuing short-term loans sped the misery of repayment, and the debt trap was realized. To make surpluses, there had to a swing in the trade imbalance – drastically curtail imports and raise exports. But reducing imports of technology reduced growth, and over-exporting would not help the already low commodity prices – which were at their lowest in 40 years. The market seemingly failed to provide a solution to this quandary. Mexico was arguably the first “ticking bomb” in the structure, with a $80 billion debt in 1982, and 75 percent of it owed to private banks.

Stuck in this quagmire, the creditor countries exercised their soft power and gave them a distinctly un-Keynesian dose of medicine, dubbed as “adjustment measures.” The age of austerity had begun, with the shrinking of the social state and privatization of their services - From 1986 to 1992, the proportion of World Bank [loans] demanding privatization rose from 13 to 59 percent, and by 1992, over 80 countries privatized 7,000 public enterprises-mostly public services: water, electricity, and telephones. The social effects on countries were drastic. In Mexico, the debt regime eliminated food subsidies for basic foods such as tortillas, bread, beans, and rehydrated milk, which grew malnourishment. Minimum wages fell 50 percent between 1983 and 1989, and purchasing power fell to two-thirds of the 1970 level. By 1990, the basic needs of 41 million Mexicans were unsatisfied, and 17 million lived in extreme poverty. Meanwhile, manufacturing growth rates plummeted, from 1.9 in 1980 to 1982 to 0.1 in 1985 to 1988, depleting formal employment opportunities.

This also had two other major effects – it reduced public input on planning and implementation, leaving it to the private sector, as well as giving global corporations a massive hold on worldwide public assets. The latter point gave their home countries massive returns on purchasing debt – up to 40 percent. In fact, from 1984 onward, there was a paradoxical net capital outflow out of the Third World, as they were forced to repay the massive unpayable debt – something unthinkable from a few decades earlier when the discussion centered around lending a helping hand and rebuilding the impoverished.

Riots in the affected countries was not a bug of this globalization model – it was the standout feature. When global economic criteria outweigh social criteria for welfare, thus increasing poverty and cutting wages, it’s no wonder that a strong military state had to complement soft economic free-market power to institute these sweeping changes if countries resisted. Austerity policies are still very much in play today, and not just limited to the historical Third World. Countries in the Eurozone such as Spain were subjected to conditional bailouts from the IMF and monetary constraints from the European Central Bank - and have a current youth unemployment rate of 37 percent with highs of 55 percent in 2013. Unless there is a declining emphasis on aggregates and promises that don’t play out very well for a majority of the population, it’s far from clear that “globalization” is some organic process in the interests of all involved.

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